Rothstein Lawsuit Adds Defendants

Banyon Income Fund Among Seven Added To The Amended Suit

November 26, 2009|By Sally Kestin Staff Writers

Hiding out in Morocco as his alleged Ponzi scheme imploded in late October, Fort Lauderdale attorney Scott Rothstein received an urgent e-mail from representatives of his largest investment consortiums, offering to help keep the scheme going, according to new allegations in a lawsuit filed Wednesday.

"We understand that the shortage is now 300m which is still manageable if we have your cooperation. Let me know," wrote Frank Preve, an employee of Fort Lauderdale businessman George Levin's hedge fund, according to the suit.

Rothstein responded, "That is not the shortage. ... That is the amount of money needed to give the investors back their money. I really just need to end it frank. It will make it easier for everyone."

The e-mail "serves as an unwitting admission of [the hedge fund's] involvement in the perpetuation of the Ponzi scheme," the suit alleges.

The allegations suggest that representatives of Banyon Income Fund, the hedge fund that raised hundreds of millions from investors, knew the legal settlements Rothstein was selling were part of the scheme, according to attorney Bill Scherer, who filed the amended lawsuit Wednesday.

"Looks like that to us. That's what we believe, what our investigation supports," Scherer said.

"This is another despicable attempt by Scherer to make the victims of this crime look like the villains," said Banyon spokesman Jesse Derris. "They were victims and time will bear that out."

The new court filing expands on a lawsuit filed Friday on behalf of Doug Von Allmen and other investors who allegedly lost $100 million with Rothstein. It added seven new defendants, including Levin, Banyon, and Irene Stay, the chief financial officer of Rothstein's law firm.

The suit provides new details into Rothstein's last frantic days as his alleged scheme was collapsing.

The suit says that after Rothstein was confronted in late October by investors demanding overdue payments, he began "methodically" emptying investor bank accounts and Rothstein Rosenfeldt Adler law firm trust accounts held by TD Bank, a named defendant in the suit.

Rothstein flew off to Morocco in a chartered Gulfstream V jet on Oct. 27. By the end of that week, the law firm was besieged by desperate investors seeking information on $30 million in missing payments.

In response to their inquiries, the firm's co-owner, Stuart Rosenfeldt, called a meeting and asked Stay, the financial officer, to confirm that there was more than $1 billion in the firm's accounts, the lawsuit says. Stay at first resisted, the suit says, but "eventually Stay relented and began inconsolably crying, repeating the phrase, 'I don't want to go to jail.' "

TD Bank executive Frank Spinosa then confirmed for Rosenfeldt that the firm's accounts "had been almost completely depleted."

Reached on his cell phone Wednesday, Rosenfeldt confirmed he went to Spinosa for the account information because Stay refused.

On Sunday, Nov. 1, a group of 17 Rothstein investors - including Ed and Ted Morse of the auto dealership family - convened, and Levin told the group that he had reached out to Rothstein to let him know Banyon could cover shortfalls, according to the suit.

While Rothstein was in Morocco, more than $21 million continued to flow out of the firm's accounts, including $16 million to a Moroccan bank, according to the lawsuit. Rothstein flew back to Fort Lauderdale two days after the investors' meeting to face a massive federal investigation. He has not yet been charged with any crimes.

Sally Kestin can be reached at skestin@SunSentinel.com or 954-356-4510.